Get rid of your Christmas and New Year debt
1. FIND OUT HOW MUCH YOU OWE
If you are going to take control of your debt, you need to know exactly how much you owe. Go over your credit card bills, bank statements and loan deals to work out how much debt you are in and where it is all located. Make sure you include everything - store cards, credit cards, loans and overdrafts.
2. MOVE YOUR DEBTS
Once you know how much you owe, work out how much interest you are paying on each debt. If any of your debts are earning 0% interest, well done. If, as is far more likely, you are paying heady levels of interest on your debt, try to move them to lower interest forms of credit. The best thing you can do is consolidate all your debt on one 0% interest credit card.
There are some very long deals available at present, the best being the Barclaycard Platinum Extended Balance Transfer, which gives you a full two years to pay off your debt before you will start to accrue interest. However, you will have to pay a balance transfer fee to shift your debt onto a balance transfer card.
3. SET UP A REPAYMENT PLAN
Once you have minimised the interest you are paying on your debt it’s time to tackle how you are actually going to repay it. Draw up a budget and work out how much you can afford to repay each month, then set up a direct debit for that amount.
Even if it is only £10 more than the minimum repayment on the credit card it is better than just paying the minimum. This is because the minimum payment on a credit card is calculated as a percentage of the total balance on the card meaning as your debt shrinks so will the amount you repay, dragging out the amount of time it will take you to clear the debt.
Now all you need to do is stick to the repayments and not build up any new debt.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.